Top 4 Reasons Why Mezzanine Loans Are Great for Acquisition Capital

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When you decide to purchase a company, you'll require a loan which perfectly matches your requirements. However, there is usually a dearth of options that fit like a hand in glove. More often than not, the loan conditions are rigid and are not reliable enough from the perspective of acquisition financing. 


If you look around the market, you’ll find that Mezzanine Finance is the best option available to serve the acquisition financing. Also, since the lending decision is purely dependent on the future earnings that you are expected to raise from your project rather than the previous history, it is further helpful from the borrower’s perspective. 

Here are the top 4 reasons why mezzanine financing is bound to work better than the other available option.
  • Appreciable capital size: Construction loans are sized according to the multiple of adjusted EBITDA (Earnings before interest, tax, depreciation and amortization- a measure of the company's operative performance). The range of the multiple can go from 3.0 to anywhere near 4.5 as well. This gives a much-required capital investment to an aspiring company so that it can grow at the fastest pace.
  • Flexible loan structure: One of the most striking benefits of mezzanine financing is that it can be tailormade as per the prevalent requirements of the company. The calculations are first drawn on the basis of the cash flow projections from the borrower. You can get access to increased capital flow as and when required. Also, you can pay it back once your financial position improves.
  •  Maturity timeline: Mezzanine Finance has the best maturity timeline of 5 to 7 years without the obligation to pay the principal amount every three years. In many of these loans, you even do not have to pay back any principal amount until the maturity date arrives. Such clauses are very helpful from the borrower's perspective since many a time, the cash needs of a company surpass the projected values.
  •  Decent business understanding at the lender’s end: Mezzanine financers are usually the smartest lot out there and are known to dominate the lending hierarchy. So, be ready to be grilled with a lot of questions- this is their way of understanding the core of your business and how are you expected to make money out it (since they need a solid ground to lend). Working with them is also helpful since you’ll have a back in case there happens to be a downswing for some reason.

All in all, Construction Loans are undoubtedly your best option for acquisition financing.
Location: Australia

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